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Intuit
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Write off bad debt in QuickBooks Online

Learn how to write off bad debt in QuickBooks Online.

Bad debt means a customer owes you money but you can't collect it. They have a debt with you, but you know you aren't going to get paid. If your business uses accrual method accounting, you can sometimes write off bad debt as a deduction. Learn more about bad debt from the IRS.

When invoices you send in QuickBooks become uncollectible, you need to record them as a bad debt and write them off. This ensures your accounts receivable and net income stay up-to-date.

Step 1: Check your aging accounts receivable

Review other invoices or receivables that should be considered as bad debt using the Accounts Receivable Aging Detail report.

  1. Go to the Reports menu.
  2. In the Find report by name field, enter “Accounts Receivable Aging Detail.”
  3. Check which outstanding accounts receivable should be written off.

Step 2: Create a bad debts expense account

  1. Select the Settings ⚙ icon. Under Your Company, select Chart of Accounts.
  2. At the upper right, select New.
  3. From the Account Type ▼ drop-down, select Expenses.
  4. From the Detail Type ▼ drop-down, select Bad debts.
  5. In the Name field, enter “Bad debts.”
  6. Select Save and Close.

Step 3: Create a bad debt item

  1. Select the Settings  ⚙ icon. Under Lists, select Products and Services.
  2. At the upper right, select New, and then Non-inventory.
  3. In the Name field, enter “Bad debts.”
  4. From the Income account ▼ drop-down, select Bad debts.
  5. Select Save and Close.

Step 4: Create a credit memo for the bad debt

  1. Select the + New button.
  2. Under Customers, select Credit Memo.
  3. Under the Customer ▼ drop-down, select the appropriate customer.
  4. In the Product/Service section, select Bad debts.
  5. In the amount column, enter the amount you want to write off.
  6. In the Message displayed on statement box, enter “Bad Debt.”
  7. Select Save and Close.

Step 5: Apply the credit memo to the invoice

Note: You can set up QuickBooks to automatically apply credit memos to your invoices. To do this:
  1. Select the Settings ⚙ icon. Under Your Company, select Account and Settings.
  2. Go to the Advanced tab.
  3. In the Automation section, select the edit (pencil) ✎ icon.
  4. Select the Automatically apply credits checkbox.
  5. Select Save, then Done.
  1. Select the + New button.
  2. Under Customers, select Receive Payment.
  3. From the Customer ▼ drop-down, select the appropriate customer.
  4. From the Outstanding Transactions section, select the invoice.
  5. From the Credits section, select the credit memo.
  6. Select Save and Close.

The uncollectible receivable now appears on your Profit and Loss report under the Bad Debts expense account.

Step 6: Run a bad debts report

You can run an Account QuickReport to check all the receivables you tagged as bad debt. To do this:

  1. Select the Settings ⚙ icon.
  2. Under Your Company, select Chart of Accounts.
  3. In the Action column of the bad debts account, select Run report.

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